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> That’s the correct financial decision, according to traditional economics—to drive the extra distance no matter the original cost. Saving $50 is the same rega

> That’s the correct financial decision, according to traditional economics—to drive the extra distance no matter the original cost. Saving $50 is the same regardless of the amount of the item in question. But wealthier participants saw the savings in relative terms, noticing the percentage savings. By contrast, poorer participants thought in absolute terms. To them, $50 saved was $50 to spend on groceries or the electric bill. Then traditional economics is a fool. Rich people value their time and their headspace. I’ve seen this again and again with someone close to me: they assign the same priority to tiny financial decisions as to big ones. They do make very optimized decisions but it is within a very small context. In the meantime they don’t realise the world of opportunity they are not seeing because of their obsessive focus on small items.

nreilly 9y ago
It’s a lot harder to quantify and value headspace. Is there a way? I was expecting the article to quantify it in reduced IQ, but it went the other way.
- Jedd 9y ago
  Quantifying IQ is hard enough - quantifying deltas based on subjective rates of poverty? That'd be a courageous goal. Authors set out to demonstrate qualitative cognitive differences between people suffering with scarcity (primarily cash) and those not. People suffering with scarcity have a cognitive load that the 'not' category does not -- I don't think that translates to reduced IQ, but was demonstrated to translate to 'more bad decisions' via heightened and persistent cognitive load. ADDENDA: From the outside looking in, that phenomenon may be misunderstood by an observer to indicate a causal relationship between bad decision making and poverty. TFA makes the case that causality is inverse to common (by governments, elites, etc) interpretation.
deleted 9y ago
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RSZC 9y ago
You're misunderstanding the question they've posed people. In either situation, the question is "is half an hour of transit worth $50 to you." Whether it's $50 saved on a $300 item or a $1000 item has no impact on the $ saved per minute.
- lazulicurio 9y ago
  I'd be interested to know if there was some sort of priming effect going on. With the wealthier people thinking more in percentage terms rather than absolute price, they might expect that the $1000 tablet would be discounted more in the future (if the $300 tablet can be 17% off, why not the $1000 tablet?) and decide to wait it out.
- rdiddly 9y ago
  Right, but there's a subtlety: The dollars saved in those minutes are worth a different amount to a rich person depending on their relative impact on the sale. $50 off of $300 is a 1/6 discount, so a "good deal" that they will (somewhat recreationally) decide to go and get. But they still don't inherently care that much about $50. You could say if they make lets say ten times what I do, they probably care 1/10th as much as I do, about $50. Anyway and meanwhile, $50 off of $1000 is a 1/20 or 5% discount. Now it's still the same $50 they don't give a shit about, but it's also now an insignificant discount. Would they spend extra time on what to them is a rounding error on a $1000 purchase? They're not really getting a "deal" anymore, it's a bore, and they decide to spend the extra $50 just to buy back their half-hour. So long as the price is still "about $1000" they're OK with it.
  - tylerhou 9y ago
    The rational answer is that if you would drive 30 minutes to save $50 off a $300 tablet, then you should also drive 30 minutes to save $50 off a $1000 tablet. You've described the psychology of why a wealthy person might not drive the 30 minutes for the $1000 tablet well (but still will spend the time to save money on the $300 tablet), but that choice is still irrational.
    - 9y ago
eftychis 9y ago
Not really. There is the notion of opportunity cost. 30' might be worth your time, unless investing that time, either working, or even resting, paid you back e.g. > $50. If you expect yourself to make less than $50 an hour (assuming you have to drive back (?), otherwise $100) then that would be a good deal. It depends on your model of course. After some point spending 30' to get $50 off is crazy, if you are struggling to make time for your family. Either the article does a poor job describing the research, or I find it somewhat incomplete. I mean there is an inherent misconception that $1000 item/asset is much much better than a $300 equivalent. I am curious how that affects the valuation between different groups of individuals.
- Jedd 9y ago
  > I mean there is an inherent misconception that $1000 item/asset is much much better than a $300 equivalent. That's not how I read it -- the authors were not assigning a qualitative value to the items, only a quantitative one. They did not need to be the same 'type' of asset. It was just that when comparing the savings - 50/300 vs 50/1000 - some people considered the ratio more important than the numerator.
- Buge 9y ago
  You are misunderstanding the article. The study asked some rich people "would you spend 30 minutes to save $50 on a $300 item". Some rich people said yes. Then they asked "would you spend 30 minutes to save $50 on a $1000 item". Some of the previous "yes" answers changed to "no". That is illogical, logically no one should have changed their answer. Poor people didn't make this illogical answer change.
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drpgq 9y ago
I guess there’s a reason penny wise and pound foolish is a saying

nreilly 9y ago

It’s a lot harder to quantify and value headspace. Is there a way? I was expecting the article to quantify it in reduced IQ, but it went the other way.

Jedd 9y ago
Quantifying IQ is hard enough - quantifying deltas based on subjective rates of poverty? That'd be a courageous goal. Authors set out to demonstrate qualitative cognitive differences between people suffering with scarcity (primarily cash) and those not. People suffering with scarcity have a cognitive load that the 'not' category does not -- I don't think that translates to reduced IQ, but was demonstrated to translate to 'more bad decisions' via heightened and persistent cognitive load. ADDENDA: From the outside looking in, that phenomenon may be misunderstood by an observer to indicate a causal relationship between bad decision making and poverty. TFA makes the case that causality is inverse to common (by governments, elites, etc) interpretation.

deleted 9y ago

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RSZC 9y ago

You're misunderstanding the question they've posed people. In either situation, the question is "is half an hour of transit worth $50 to you." Whether it's $50 saved on a $300 item or a $1000 item has no impact on the $ saved per minute.

lazulicurio 9y ago
I'd be interested to know if there was some sort of priming effect going on. With the wealthier people thinking more in percentage terms rather than absolute price, they might expect that the $1000 tablet would be discounted more in the future (if the $300 tablet can be 17% off, why not the $1000 tablet?) and decide to wait it out.
rdiddly 9y ago
Right, but there's a subtlety: The dollars saved in those minutes are worth a different amount to a rich person depending on their relative impact on the sale. $50 off of $300 is a 1/6 discount, so a "good deal" that they will (somewhat recreationally) decide to go and get. But they still don't inherently care that much about $50. You could say if they make lets say ten times what I do, they probably care 1/10th as much as I do, about $50. Anyway and meanwhile, $50 off of $1000 is a 1/20 or 5% discount. Now it's still the same $50 they don't give a shit about, but it's also now an insignificant discount. Would they spend extra time on what to them is a rounding error on a $1000 purchase? They're not really getting a "deal" anymore, it's a bore, and they decide to spend the extra $50 just to buy back their half-hour. So long as the price is still "about $1000" they're OK with it.
- tylerhou 9y ago
  The rational answer is that if you would drive 30 minutes to save $50 off a $300 tablet, then you should also drive 30 minutes to save $50 off a $1000 tablet. You've described the psychology of why a wealthy person might not drive the 30 minutes for the $1000 tablet well (but still will spend the time to save money on the $300 tablet), but that choice is still irrational.
  - 9y ago

eftychis 9y ago

Not really. There is the notion of opportunity cost. 30' might be worth your time, unless investing that time, either working, or even resting, paid you back e.g. > $50. If you expect yourself to make less than $50 an hour (assuming you have to drive back (?), otherwise $100) then that would be a good deal. It depends on your model of course. After some point spending 30' to get $50 off is crazy, if you are struggling to make time for your family. Either the article does a poor job describing the research, or I find it somewhat incomplete. I mean there is an inherent misconception that $1000 item/asset is much much better than a $300 equivalent. I am curious how that affects the valuation between different groups of individuals.

Jedd 9y ago
> I mean there is an inherent misconception that $1000 item/asset is much much better than a $300 equivalent. That's not how I read it -- the authors were not assigning a qualitative value to the items, only a quantitative one. They did not need to be the same 'type' of asset. It was just that when comparing the savings - 50/300 vs 50/1000 - some people considered the ratio more important than the numerator.
Buge 9y ago
You are misunderstanding the article. The study asked some rich people "would you spend 30 minutes to save $50 on a $300 item". Some rich people said yes. Then they asked "would you spend 30 minutes to save $50 on a $1000 item". Some of the previous "yes" answers changed to "no". That is illogical, logically no one should have changed their answer. Poor people didn't make this illogical answer change.

deleted 9y ago

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drpgq 9y ago

I guess there’s a reason penny wise and pound foolish is a saying